Creation and destruction in transition economies: The SME sector in Slovakia

This article analyses the survival probability of privately owned small and medium sized enterprises (SMEs) in Slovakia during the post-communist period up to and including the recent recessionary period. We build models within a failure prediction context developing ‘transition’ variables that relate to the origin and ownership of the company. Using a sample of 126,649 sets of accounts of 44,597 SMEs in Slovakia, we identify 793 exits by failure during the period 1997–2012. We find that supplementary information relating to the transition process, in combination with the financial and non-financial variables, makes a significant contribution to the default prediction power of risk models built specifically for Slovakian SMEs. We find strong support for our hypothesis that, to some degree, foreign ownership reduces failure probability in addition, there is support for our ‘privatisation trap’ and ‘post-transformation recession’ hypotheses.